Long, tough road to make India ‘easiest’ place for business

Published on : 14 January, 2015 By Imran Choudhury

John Kerry attends the Vibrant Gujarat summit

NARENDRA Modi may have pledged to make India the “easiest” place to do business but experts remain skeptical about how the prime minister intends to overcome obstacles such as corruption, red tape and an arduous tax regime.

Hundreds of executives gathered this week in Modi’s longtime fiefdom of Gujarat to hear him promise to transform India’s business climate, with “unlimited” reforms designed to attract foreign investment.

Everyone from World Bank president Jim Yong Kim to US Secretary of State John Kerry publicly heaped praise on Modi’s efforts to kickstart economic growth since Bharatiya Janata Party stormed to power at elections in May.

But behind the scenes at the major “Vibrant Gujarat” summit, the mood among some was more cautious while economists rattled off a string of substantial reforms the government still needs to tackle.

India currently ranks 142 out of 189 on the World Bank’s “ease of doing business survey”, behind its arch rival Pakistan, and even dropping two places on the list last year.

Kerry hailed Modi as a “visionary” in his address at the summit, enthused by his government’s promises to cut a swathe through red tape and simplify a tax regime that often leaves foreign business in despair.

But, speaking on the sidelines of the gathering, one of Kerry’s own officials struck a more cautious wait-and-see note.

“I think there are companies who are sort of watching to make sure that what’s projected actually happens,” a senior US State Department official said in the Gujarat’s capital Gandhinagar.

“And there’s no reason to believe it won’t, but at the same time these are very entrenched things that take a while to change,” he said.

Also speaking at the three-day gathering, Finance Minister Arun Jaitley defended his government’s pace of reforms so far and stressed that Modi’s pledge to make India the “easiest” place to do business was not an empty slogan.

Jaitley pointed to moves to fast-track changes to land purchases - a major business bugbear - and steps to introduce a national sales tax to replace myriad confusing duties imposed by state and national governments.

“I see investments significantly moving up in days to come,” said Jaitley.

Economist Rajiv Kumar applauded Modi’s efforts but said more was needed to remove cumbersome and often opaque rules and regulations for every kind of business, from private schools to major industries, operating in India.

Kumar also said India’s notoriously inert and labyrinthine bureaucracy charged with imposing those regulations needed to be overhauled.

“It’s a paradigm shift that’s needed. It’s not incremental,” Kumar, a senior fellow at the Delhi-based Centre for Policy Research think-tank, told reporters.

And he was brutal about India’s “completely arbitrary” taxation regime, which he blamed for keeping international investors away and which the government has also promised to fix.

British mobile giant Vodafone is embroiled in a bitter, $2.4-billion battle with India’s tax authorities who are sometimes accused by business of acting capriciously, while Finnish company Nokia had a plant in India seized over a tax dispute.

While he agreed there was “still a long way to go”, Kumar said he was optimistic the government could transform the economy “because India will never have another chance like this and Modi understands that”.

India needs $800bn (£527.14bn) a year in investments, well above the current $200bn (£131.78bn), to help the economy accelerate to seven per cent growth, the government’s financial services secretary told the summit.

Asia’s third largest economy has been struggling through its worst slowdown since the 1980s, with growth at around five percent, too low to help create jobs for tens of millions of young people.

While some experts pointed to a need to overhaul dilapidated infrastructure including pot-holed roads and unreliable power supplies to boost business, others singled out endemic corruption.

India-born economist Jagdish Bhagwati, a professor at Columbia University in New York, said the government must do more to tackle corruption among public officials that plagued the previous left-leaning Congress government’s decade in power.

“They have inherited the UPA-2 (Congress coalition) government’s inactions. They (UPA-2) didn’t really do anything about corruption,” Bhagwati said in an interview with the Hindustan Times newspaper.

On the sidelines of the summit, foreign and local companies announced planned joint projects worth billions of dollars in a sign of growing investor confidence in India.

Analysts however expressed scepticism, saying some businesses promised projects at the biennial summit in the hope of winning government favour.

David Farr, CEO of US technology and engineering company Emerson, welcomed Modi’s campaign launched with much fanfare last year to bolster manufacturing in India.

But he told the meeting India needed to become more competitive, including by investing more in research and development to help local manufacturers.

“Multinationals like Emerson tend to engineer and design in India but do not do prototyping, testing, and validation here, and we do manufacturing elsewhere,” he said. “It needs to change.”